If a foreign country's interest rate is similar to the U.S. rate, the forward rate premium or discount will be close to zero, meaning that the forward rate and the spot rate will provide similar forecasts.

Question

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If the interest rates between the two countries are similar, there should not be a significant difference between the forward rate and spot rate, leading to a close to zero forward rate premium or discount. This means that the forward rate and spot rate will provide similar forecasts.

If a Foreign Country's Interest Rate Is Similar to the U.S